The 200 period moving average is a very important moving average. Whether it is in the daily chart or the 60 min chart, it plays a very important role in finding support.
In this article I will teach you how to use the 200 MA to find areas where the stock is likely to have a bullish reversal.
Let's take a look at the daily chart of Apple's stock above. We have 3 lines in the chart. I like to use the 20 MA (red line), 50 MA (blue line) and the 200 MA (yellow line).
Together they tell me the short term trend, the mid term trend and the long term trend.
From August to October, Apple had a nasty fall. More like a correction actually. But when AAPL reached the 200 MA area, it suddenly bounced back up.
There are many more technical reasons for its bounce up but if you knew about the 200 MA as a support, you would start to take note once a stock reaches the area of the 200 MA.
From my observations and experience, a rising 200 MA tend to have a more positive impact as support. Since the rising 200 MA is a signal of long term strength, when a stock corrects to that area, it is more likely to have a bullish reversal.
Here is a summary of the 200 MA as support:
The 200 MA is a powerful support area
Stocks tend to have a bullish reversal when it reaches the 200 MA
Sometimes the stock may drop a little below the 200 MA before reversing back up. Support is an area not a definite point
A rising 200 MA is more powerful as support. Since it signals long term strength, the stock tends to move up and have a long term bull run after finding support at the 200 MA.
A stock that is above the rising 200 MA has long term strength. So if you are looking for a stock to trade, look for a stock that is dropping to its rising 200 MA.
I hope this article has help you in understanding the 200 MA as a support.
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